Will Kohl's Close More of Its Brick-and-Mortar Stores in 2026?

Kohl's reported Q4 2025 adjusted EPS of $1.07 vs $0.86 consensus while net sales missed at $4.97B vs $5.02B, with comparable sales down 2.8% YoY and guidance calling for net sales to fall ~2% in 2026 (fifth straight year of same-store declines). Management ruled out near-term store closures, saying >90% of its ~1,150 stores are profitable and that it will focus on optimizing existing locations and omnichannel execution (35% of Q4 sales online). The stock has retraced from a 2025 peak near $25 to about $12 and trades at under 9x forward earnings, leaving valuation pressure until sales stabilize or improve.

Analysis

Kohl’s weakening operating momentum is a catalyst for redistribution of value across the value/discount retail complex rather than a standalone solvency story. As Kohl’s leans into squeezing margins while holding store count, suppliers and private-label partners will face more aggressive markdown funding and payment-term requests, which should depress vendor yields and benefit competitors with stronger inventory turns.

Mall landlords and logistics vendors are second-order actors to watch: deferred store pruning preserves near-term rent roll for landlords but delays the structural benefits of right-sizing (lease break fees, subleasing, capex savings) that would otherwise accelerate cash generation. Conversely, pure off-price and high-turn retailers that can flex inventory (e.g., opportunistic buying and faster replenishment) will likely capture lost share if Kohl’s continues to prioritize margin over volume.

From a timing perspective, the market is pricing this as a binary execution story: either top-line stabilizes within a few quarters or downside rerates continue. Reversal requires durable signals — multi-quarter comp stabilization, accelerating gross margin ex-promotions, or a clear capital-allocation event (asset sale/PE bid). Absent those, a relative-value trade versus higher-turn peers is the cleaner way to express downside while limiting macro exposure.

Key Decisions for Investors

• Pair trade (3–9 months): Short KSS, dollar-neutral long TJX or ROST. Rationale: capture market-share share shift to faster-turning off-price peers while isolating macro retail risk. Target relative outperformance of 15–25%; stop-loss if KSS outperforms pair by 10%.
• Options hedge (1–6 months): Buy a limited-risk put spread on KSS (out-of-the-money puts, near-term expiries) to express a tactical downside view ahead of the next comp release. Position size to cap max premium loss at ~2–3% of portfolio; target asymmetric payoff of 3–5x if comps miss and guidance is cut.
• Event-driven long (6–18 months conditional): Accumulate KSS equity or long-dated calls after two consecutive quarters of comp stabilization or upon announcement of a sizeable real-estate monetization/strategic sale. Risk/reward: asymmetric — limited as a small opportunistic stake versus potential multi-bagger if execution convinces market.
• Long structural winner (12 months): Overweight a high-turn, off-price operator (TJX/ROST) outright to capture share gains and higher inventory velocity. Use this as the defensive leg of the portfolio while expressing KSS downside via the pair trade.